Hospital Spending Growth Slows in 2017

Rich Daly, HFMA senior writer/editor

2018 hospital finances may worsen amid many policy headwinds.

Jan. 22—Hospital spending grew less than half as fast in 2017 as it did the year before, according to a recent economic trends analysis.

Spending on hospital care increased by 2.9 percent in the 12 months ending in November 2017, according to a recent
analysis by the Altarum Institute. That was a steep drop from the 6.2 percent increase that occurred in the 12 months before November 2016.

The hospital spending growth slowdown was credited with stabilizing national health spending at near 18 percent of the gross domestic product, according to the Altarum analysts.

Thomas Tobin, managing director for Hedgeye, said hospitals in 2017 saw declines in their surgery rates, adjusted admissions, and emergency department (ED) admissions. ED admissions surged in the wake of the Affordable Care Act’s (ACA’s) coverage expansions in 2014, but tapered off during the last
two years.

“The ER structural volume is going to be problematic in 2018 for much of the same reason it’s been problematic for the last couple of years,” Tobin said in a call with investors.

Also expected to impact hospitals is ongoing disenrollment in Medicaid, which Tobin views as overenrolled by about 10 percent.

“The [Government Accountability Office] says it is overenrolled, and we’re starting to see states unwind it,” Tobin said.

The enrollment drops could come through an expected slew of state-mandated work requirements, including in in Massachusetts, which is considered a leader in healthcare policy and where Medicaid spending consumes 40 percent of the budget. Proposed work requirements for Kentucky enrollees garnered the support of
hospitals because of positive attendant policies, such as allowing enrollees to choose subsidized private insurance coverage, which provides much better hospital payments.

Also impacting enrollment is the repeal of the individual health insurance mandate as part of recently enacted tax reform.

“Repeal of the mandate threatens the stability of ACA markets, which depend on having health plans that are willing to participate,” said Elizabeth Carpenter, a senior vice president for Avalere.

An Avalere 2018
outlook noted that high cost-sharing requirements in ACA marketplace plans will continue to burden patients and may reduce volumes and limit access to care.

Those assessments followed negative outlooks for the not-for-profit hospital sector from rating agencies, which cited federal policy uncertainty and payer trends. In contrast, the outlook at for-profit hospitals remains stable, according to Moody’s.

Hospital Implications

Weaker hospital- sector performance is expected to produce a range of effects, including a slowdown in hospital hiring.

Hedgeye found a strong relationship between job openings in health care and overall medical consumption, generally, and hospital “same-store” admissions specifically. The firm noted that healthcare job openings decelerated by 1.1 percent, year-over-year, on a rolling three-month basis
through November 2017. That was far below the recent peak increase of 38.1 percent in December 2014.

Hospital bankruptcy filings, which spiked in 2017, likely will continue to increase. According to data compiled by Bloomberg, healthcare bankruptcy filings more than tripled in 2017. The analysis blamed regulatory changes, the rise of high-deductible health plans, and advances in technology
for taking a toll on healthcare company finances.

“All the conditions that drove that in 2017 will continue or worsen heading into 2018,” Tobin said.

Better News

In contrast to 2017, hospitals are not expected to face the possibility of repeal of the entire ACA in 2018, said Emily Evans, managing director of health policy for Hedgeye.

Among the most pressing policy decisions affecting hospitals is a group of Medicare extenders, which are various add-on payment policies. A package of such measures is expected to be attached to a long-term government funding deal that Congress may finalize next month.

Hospital advocates also are appealing a federal district court’s ruling that allowed 340B program cuts to go into effect Jan. 1. Any success in reducing the $1.6 billion in planned cuts to 340B hospitals would carry big financial benefits, industry analysts said.

Also potentially benefiting hospitals are plans by the Centers for Medicare & Medicaid Services (CMS) to address some leading regulatory burdens, Seema Verma, administrator of CMS, told the American Hospital Association.

2018 hospital finances may worsen amid many policy headwinds.

Jan. 22—Hospital spending grew less than half as fast in 2017 as it did the year before, according to a recent economic trends analysis.

Spending on hospital care increased by 2.9 percent in the 12 months ending in November 2017, according to a recent
analysis by the Altarum Institute. That was a steep drop from the 6.2 percent increase that occurred in the 12 months before November 2016.

The hospital spending growth slowdown was credited with stabilizing national health spending at near 18 percent of the gross domestic product, according to the Altarum analysts.

Thomas Tobin, managing director for Hedgeye, said hospitals in 2017 saw declines in their surgery rates, adjusted admissions, and emergency department (ED) admissions. ED admissions surged in the wake of the Affordable Care Act’s (ACA’s) coverage expansions in 2014, but tapered off during the last
two years.

“The ER structural volume is going to be problematic in 2018 for much of the same reason it’s been problematic for the last couple of years,” Tobin said in a call with investors.

Also expected to impact hospitals is ongoing disenrollment in Medicaid, which Tobin views as overenrolled by about 10 percent.

“The [Government Accountability Office] says it is overenrolled, and we’re starting to see states unwind it,” Tobin said.

The enrollment drops could come through an expected slew of state-mandated work requirements, including in in Massachusetts, which is considered a leader in healthcare policy and where Medicaid spending consumes 40 percent of the budget. Proposed work requirements for Kentucky enrollees garnered the support of
hospitals because of positive attendant policies, such as allowing enrollees to choose subsidized private insurance coverage, which provides much better hospital payments.

Also impacting enrollment is the repeal of the individual health insurance mandate as part of recently enacted tax reform.

“Repeal of the mandate threatens the stability of ACA markets, which depend on having health plans that are willing to participate,” said Elizabeth Carpenter, a senior vice president for Avalere.

An Avalere 2018
outlook noted that high cost-sharing requirements in ACA marketplace plans will continue to burden patients and may reduce volumes and limit access to care.

Those assessments followed negative outlooks for the not-for-profit hospital sector from rating agencies, which cited federal policy uncertainty and payer trends. In contrast, the outlook at for-profit hospitals remains stable, according to Moody’s.

Hospital Implications

Weaker hospital- sector performance is expected to produce a range of effects, including a slowdown in hospital hiring.

Hedgeye found a strong relationship between job openings in health care and overall medical consumption, generally, and hospital “same-store” admissions specifically. The firm noted that healthcare job openings decelerated by 1.1 percent, year-over-year, on a rolling three-month basis
through November 2017. That was far below the recent peak increase of 38.1 percent in December 2014.

Hospital bankruptcy filings, which spiked in 2017, likely will continue to increase. According to data compiled by Bloomberg, healthcare bankruptcy filings more than tripled in 2017. The analysis blamed regulatory changes, the rise of high-deductible health plans, and advances in technology
for taking a toll on healthcare company finances.

“All the conditions that drove that in 2017 will continue or worsen heading into 2018,” Tobin said.

Better News

In contrast to 2017, hospitals are not expected to face the possibility of repeal of the entire ACA in 2018, said Emily Evans, managing director of health policy for Hedgeye.

Among the most pressing policy decisions affecting hospitals is a group of Medicare extenders, which are various add-on payment policies. A package of such measures is expected to be attached to a long-term government funding deal that Congress may finalize next month.

Hospital advocates also are appealing a federal district court’s ruling that allowed 340B program cuts to go into effect Jan. 1. Any success in reducing the $1.6 billion in planned cuts to 340B hospitals would carry big financial benefits, industry analysts said.

Also potentially benefiting hospitals are plans by the Centers for Medicare & Medicaid Services (CMS) to address some leading regulatory burdens, Seema Verma, administrator of CMS, told the American Hospital Association.

HFMA RESOURCE LIBRARY

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